Daily Brief

Retail sales surprises

USD

In view of Thursday's mostly disappointing US economic data the USD did staggeringly well to book an average gain - albeit a small one - against the other major currencies. Retail sales fell in December, as they did in most G7 countries as a result of Christmas purchases being brought forward into November by the Black Friday movement. No great surprise there, then, but the scale of the decline came as a bit of a shock. Overall sales were down by a monthly 1.2% with the "control group", an important indicator for the Fed, falling 1.7%.

There was better news on the political front though. It is suggested that the March 1 deadline for trade talks with China could be extended and the president indicated that he will sign the budget to prevent a second government shutdown. It remains to be seen how investors will react - if at all - to the president's invocation of emergency powers to secure funding for his Wall.

EUR

Investors did not find it too difficult to put behind them any disappointment over the weak data for economic fourth quarter growth in Germany and the euro zone. The EUR tended higher once the market had digested the numbers and it is up by 0.2% on the day. There was nothing among this morning's crop of national figures to cause alarm: Spanish inflation was steady at 1.0%; Italy's trade figures for December were unremarkable; Euroland's surplus for the same month was roughly steady.

There was another political eruption though, this time in Spain. Prime Minister Pedro Sánchez has called a snap general election for 28 April, having had his budget rejected by parliament. It will be the third election in four years. There is considerable uncertainty as to how any new coalition will look: Basque and Catalan separatist parties will be an important part of the mix, and the right-wing Vox party is said to be gaining support. It is unclear what new alliances might follow the election.

CAD

As the United States published its feeble retail sales figures, Canada reported that manufacturing shipments fell 1.3% in December. A 0.2% increase had been expected. Sales fell in 12 of the 21 industries surveyed, representing 72.7% or manufacturing sales, and demand was also lower for petroleum and coal products. Further, inventories of unsold product were up by 0.3%. Canada's new home pricing index produced some quirky results: prices in December were exactly unchanged on the month and the year.

Oil did not play much of a part in the proceedings: WTI crude was within a dozen cents of being unchanged on the day. The CAD lost a fifth of a cent - 0.2% - to the USD.

GBP

Sterling was no more successful than the CAD, also losing 0.2% to the USD. It lost ground during the early US session before stabilising overnight and perking up this morning. The GBP's savior was the UK retail sales figures for January. After a glum December, sales went up by a monthly 1.0% for an entirely respectable annual increase of 4.2%.

There was another round of Brexit votes in the House of Commons on Thursday, in which the government was the clear loser. None of the motions posed an existential threat, either to the May government or to Brexit itself. Nevertheless, it was the hard-line Brexiteers in Theresa May's own party who caused the downfall of a measure that the prime minister herself had endorsed. There will now be a further week or more of jockeying for position before the next major parliamentary vote, meaning continued uncertainty for the GBP.

JPY

Unlike its trajectory against the EUR, GBP and CAD, when the USD went down against the JPY, as a result of the poor retail sales figures, it stayed down. The JPY is up by 0.5% on the day. It is probably fair to say that the recovery represented a technical rebound, catalyzed by the US data, rather than any new affinity for the yen.

There was nothing among this morning's Japanese ecostats to extend the move, and certainly nothing to encourage a downward test of the USD/JPY trend support at 110. Industrial production in December was 0.1% and 1.9% lower on the month and the year, exactly in line with forecast, and capacity utilization declined by 1.9%.

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